by John E. Motylinski
In 2019, the Illinois General Assembly passed Public Act 101-0610, which required downstate police and firefighter local pension funds’ assets to be consolidated into statewide funds for investment purposes. Since then, the Firefighters Pension Investment Fund (FPIF) and the Illinois Police Officers’ Pension Investment Fund (IPOPIF) have geared up to receive those investment funds and go to work. Recently, however, the consolidation encountered its first legal challenge—a class action lawsuit claiming Public Act 101-0610 unconstitutional.
On February 23, 2021, eighteen police and firefighter pension funds, as well as individual active and retired members of these funds, filed a complaint against Governor Pritzker, the two new consolidated pension investment funds, and others in the Kane County Circuit Court. The plaintiffs are seeking to certify the lawsuit as a class action. If successful, the lawsuit’s outcome would apply to every downstate police and firefighter pension fund in Illinois.
The 22-page complaint alleges the consolidation violates three provisions of the Illinois Constitution: (1) the Pension Protection Clause; (2) the Contracts Clause; and (3) the Takings Clause. However, each of these claims revolve around the same general premise. The plaintiffs claim that they “had a contractual and enforceable right to exclusively manage and control their investment expenditures and income, including interest dividends, capital gains, and other distributions on investments,” which the consolidation has infringed upon.
In Illinois, there is a rich body of law concerning interference with pension rights and benefits. Article XIII, Section 5, of the Illinois Constitution, commonly known as the “Pension Protection Clause,” provides that “[m]embership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” Ill. Const. 1970, art. XIII, § 5. From this, the Illinois Supreme Court has held that public employees have an inviolable contractual right to their vested pension benefits, which cannot be diminished or impaired. Therefore, legislation that diminishes these benefits will usually be struck down.
The case of Buddell v. Board of Trustees, State University Retirement System of Illinois, 118 Ill. 2d 99, 101 (1987) is a prime example of such an improper legislative diminution of pension benefits. There, the plaintiff joined the pension fund in 1969. Five years later, the Illinois General Assembly amended the Pension Code to limit military service credit to those who applied before September 1, 1974. Later still, the plaintiff tried to apply for military service credit, but was denied because he had not applied before the deadline. The Illinois Supreme Court found that the plaintiff had a substantive and vested right to apply for military service credit because there was no limit on applying for such credit when he joined the pension fund.
In the recent case challenging the consolidation, the plaintiffs follow the example of Buddell by maintaining that Public Act 101-0610 has similarly deprived their vested pension benefits. As the plaintiffs articulate one example, a retired-beneficiary participant previously “had the benefit of a 2.1% vote (1 out of 47) for the one beneficiary selected member” of his pension fund, “and thus, effectively a 0.43% say regarding the Board’s selection of an investment manager or advisor.” However, “[a]s a result of Public Act 101-0610, he will only have the benefit of a 1/8,830 vote (1 out of 8,830) for the one beneficiary-selected member of the nine-person Permanent Board” of the Firefighters’ Pension Investment Fund, which equates to “just a 0.0013% say regarding the Permanent Board’s selection of an investment manager or advisor.” The plaintiffs also claim that their vested benefits have been diminished because the consolidation law requires each downstate pension fund to ultimately “bear all costs of transition, up to $15,000,000, plus interest.”
The case is expected to be resolved in the circuit court on initial motions. On June 25, 2021, the Defendants filed motions to dismiss the Plaintiffs’ amended complaint, and the court has given the Plaintiffs until August 4, 2021, to respond to these motions. Once the trial court issues its ruling, the case will likely be appealed by the losing party. The Illinois Supreme Court may decide to review the case thereafter.
Meanwhile, the asset consolidation process is proceeding. FPIF recently notified local funds of their asset transfer dates which begin October 1, 2021. However, that process may be interrupted if a court issues an order staying the transfer of assets.